“Why would lenders use direct marketing for reverse mortgages?” a mortgage marketing executive once asked me, when I was speaking at a finance conference. The audience member’s question is typical: reverse mortgages are perhaps the least-known and most-misunderstood member of the mortgage-marketing arsenal. In part, this is understandable. Unlike standard home loans, reverse mortgages are only available to a specific, highly delimited segment of consumers. They are also much more heavily regulated than a standard mortgage, and thus require a longer period of time to close.
But beyond the limitations and misunderstandings, a profitable field stretches out for savvy mortgage marketers — all the more so, in fact, for being lesser-known.
Precisely because of the relative obscurity of the reverse-mortgage field, there are fewer marketers working it and thus, less competition. And, of course, there is a healthy profit motive: on average, a reverse-mortgage loan turns out to be greater than the sum of the monthly payments paid to clients. The combination is ideal: clients receive a measure of economic security for the rest of their lives, while the field retains its profitability for marketers. Even better, reverse mortgages are federally insured through the U.S. Department of Housing and Urban Development, a scenario that translates into very low risk for lenders.
The Education Barrier
Reverse mortgages offer several notable advantages to the population they are designed to help, but the major barrier is that these loans are not well known to consumers. And that’s where mortgage marketers can close the gap. Education is the key to winning over your market—and the nuances of this loan can be turned into very compelling marketing messages. Reverse mortgages offer the ability not only to wipe out homeowners’ mortgage payments, but also to provide them with a fixed, monthly payment for the rest of their lives. Combine this with the security of being able to remain in their home, even if the payments end up exceeding the home’s value, and the option of combining a set of monthly payments with a line of credit, and your consumer is looking at one good deal. Finally, most reverse mortgages are free of income restrictions, and their proceeds are generally tax-free.
Restrictions… or Advantages?
In order for the reverse-mortgage field to work, in order for it to constitute a win-win for both clients and marketers, access must be restricted. And it is. Applicants for reverse mortgages must be 62 years or older, and the home must not only be their primary residence, but also be owned outright or with a mortgage balance low enough to be liquidated at closing. In their federally insured form, known as Home Equity Conversion Mortgages (HECMs), applicants must receive consumer counseling from a qualified counselor, a process that may take up to six months. Further restrictions apply: the maximum loan amount that HECM applicants can receive is fixed by county, and origination fees for HECMs are also dictated by law.
But even these restrictions can be seen as advantages. Look at it this way: in such a highly specialized field, the pool of qualified prospects has already been pre-filtered! This allows you, as a marketer, to target potential clients more easily, without wasting valuable time and resources. In our final section, we will provide some tips on precisely how to do this.
The Power of Predictive Analytics and Direct Marketing
The positive aspect of such strict regulation is that the step of identifying and qualifying your prospects has already been done for you. And your pool of reverse-mortgage candidates, already limited by the restrictions outlined above, can be further honed through a process called predictive analytics: a marketing model that, by analyzing a set of indicators, allows you to score your potential clients based on their likelihood to respond and convert. This allows you to maximize response rates, cost-efficiency, customer retention, and, of course, your bottom line.
Combining predictive analytics with a targeted direct marketing campaign is even more powerful. Especially in the case of reverse mortgages, it is very clear who your clients are and where their needs lie. Make sure your messaging reflects these needs, and that it is delivered through the channel most likely to reach your consumers. Think about it: is the over-62 set more likely to respond to an internet banner advertisement, or a well-crafted piece of direct mail?
Given that direct mail is almost guaranteed to reach its intended recipient (95% success rate, compared to 40% of online messages and only 20% of emails), a reverse mortgage marketing campaign starting with direct mail and followed by a phone call is likely to yield big results. For all of these reasons, the answer to the audience member’s question, “Why would lenders use direct marketing for reverse mortgages?” becomes very simple: because it works.
Kesna Lawrence is the SVP for Client Strategy at Datamyx, the top provider of data-driven technology solutions for direct marketing in the financial services, automotive, and insurance industries. Prior to joining the Datamyx team in 2004, Kesna held leadership positions at both ABN AMRO and Ocwen. He holds a B.S. in Finance and Economics from Florida State University.